Marketing consultants at Optimize Smart wrote a recent article about reducing costs, urging their business clients to examine the efficiency of looking deeper than trying to pump sales, and consider reducing sales costs to increase profitability.
They suggest, “Calculate the ROI of everything you do.” Good idea! $100k saved is a $100k earned!
To use an example, let’s compare how doubling the number of Facebook ads you have compares to using conference calls to cut the costs and increase the frequency of sales meetings.
Pumping sales inflates expenses too
Increasing sales is the first thing everybody thinks of to increase profits, but blindly boosting sales can sometimes even depress profits. Here’s how.
Increased sales come with increased expenses. If you gross $100,000 more in a quarter, it doesn’t help you if your corresponding cost of goods or services sold is $90,000, and it cost you $15,000 more in Facebook ads to get the extra sales. Then you’re going backwards.
When you want to increase sales, you must calculate the cost of increasing sales, and be sure you have invested wisely.
Pumping sales can muddy the waters
Before you increase sales, you have to know what the cost of increasing your capacity to meet the sales will be. Will you have to hire and train new staff? Set up new distribution channels?
What this brings us to is the importance of knowing whether your business model is actually profitable before you stress your system with a major sales push.
Quantity of sales does not automatically provide quality.
A cautionary tale
For example, a popular furniture store in a major city hit a marketing nerve, and became the darling of young urban professionals. Let’s call them “Urban Cowboy”.
Their model was not profitable, but they masked their profit problems by lavishing a huge advertising budget on increasing sales every year, doubling them twice, and living off their fat cash flow.
When sales plateaued after 5 years, their hidden debt caught up with them like a herd of stampeding cattle, trampling what was a fine store into dust and tumbleweeds. They crashed out, even though their sales were outstanding.
Their sales costs were too high to be sustainable, and increasing sales distracted them from figuring out how to become profitable.
The sure fire way to boost profit
Boosting the bottom line is more about controlling costs than increasing traffic and sales. Controlling costs in business is like pruning roses. You cut away the dead wood, the whole plant grows better, and you get more flowers.
It is hard for people to conceptualize that less brings more, but if you want to get a better return on your sales investment, roll up your sleeves and tackle the less glamorous task of pruning your sales cost per unit.
The telephone as profit machine
Look at teleconferencing as an example. Imagine a sales meeting of a team spread across a State or Province. You know that sharing sales conversion tactics and information is important to increasing sales, and you need to communicate the newest product enhancements to staff, keep them inspired, and build team spirit.
Unfortunately, to get 15 people to a 3-hour meeting (45 hours of labour) costs 2 hours of travel time each. That’s 30 labour hours wasted to get 45 labour hours of productivity. Most companies respond to that kind of waste by cutting the number of sales meetings.
Unfortunately, cutting sales meetings reduces the overall productivity of the team, and ends up depressing sales and driving the sales revenue to sales cost ratio down.
Examples: 3 benefits of cutting sales costs
- Conference calls can eliminate that wasted 30 person hours, because each person just picks up their phone, dials a call-up number, and starts talking. Right off the bat, using teleconference technology has saved 30 wasted hours and boosted the sales revenue to sales cost ratio up.
- In addition to that, the head of marketing is no longer under pressure to reduce the number of sales meetings to reduce costs. Maybe you’re having four meetings a year now, but 8 meetings a year is the optimal number to boost sales. Go ahead and schedule 8 teleconference meetings. You’ll save 8 x 30 = 240 staff hours in travel time, and get the maximum productivity out of your sales staff.
- What about expenses? How much gas and per diem expense did we save using conference calls? Plenty. Shave another $2,000 off the annual marketing expense, even though we increased the total number of meetings. And these calls themselves, what about their hard cost?
Conference calls don’t need to cost anything
FreeConference.com calls, for instance, are free. They can be set up in less than one hour of staff time, and even less for repeat calls using the Quick Scheduler feature. Deluxe features like Desktop Sharing and Personalized Greetings can be added for as little as $16.95 per month, and Call Record and Toll Free courtesy numbers are available too.
$16.95 a month is less than the cost of mileage for one of those 15 salespeople to get to one staff meeting.
Look before you leap
To quote Optimize Smart’s article, “Business bottom line is more about controlling costs than increasing traffic and sales.”
Pruning your sales cost per unit isn’t as glamorous as promising the moon with sales growth charts busting off the top of the screen, but it is guaranteed to work.
Controlling costs is one element of a very healthy practice of making sure your business model is profitable before you pour a pile of money into sales, which could actually end up distracting you from becoming more profitable, and even cause a faulty business model to crash.
Conference calls are just one example of how to cut costs while increasing profitability. Maybe it’s time to schedule one with your accountant, head of marketing, and COO, and see if you can fine tune your business model to create more profit.